Value-of-Solar Tariffs

Clean Energy Strategies

A value-of-solar (VOS) tariff is a rate design policy that gives customers with solar
installations credit for the electricity generated by a photovoltaic (PV) system.

Utility customers with distributed PV panels on their homes or businesses can give
power to and take power from the grid. A VOS tariff clarifies how much energy is sold
in each direction (customer to utility and utility to customer) and at what rate the
energy is valued. A VOS tariff should not be confused with the broadly used term "value
of solar," which refers to methods used to determine the market value of distributed
photovoltaic projects.

Under the current implementation of VOS tariffs, of which there are two (Minnesota
and Austin, Texas), customers continue to purchase all of their energy at the utility's
retail rate, but are compensated for solar PV generation at a separate VOS rate in
dollars per kilowatt hour ($/kWh). The VOS rate accounts for solar PV's benefits to
stakeholders net its costs.

These factors and others may be included in VOS methodologies to calculate the VOS
rate. Although analyses of distributed solar PV value share common trends, no standard
methodology currently exists.

Background

A VOS tariff is a policy alternative to net energy metering (NEM), which is the most
common form of valuing distributed generation (DG) interactions with and contributions
to the electricity grid. Currently, 43 states have some form of NEM; only two jurisdictions
have adopted VOS alternatives: Austin, Texas (2006) and Minnesota (2014).

Benefits

Utilities can better understand customer load, timing, and volume because a VOS tariff
separates electricity generated by the consumer from electricity consumed.

Customers receive compensation based on utility-specific benefits and costs of their
electricity generation, instead of fixed retail rates that may span many regions.

Customers pay for transmission and distribution services embedded in the retail rate
of the electricity they purchase, thereby addressing cross-subsidization concerns
associated with NEM policies.

Implementation Issues

Gaining consensus on value of solar methodology and determining compensation rate
can be challenging.

The recalculation of the VOS rate on an annual basis can produce revenue uncertainty
for PV owners.

Design Best Practices

Market interest and discussion of VOS tariffs are increasing. There is limited experience,
and therefore published literature, associated with standardizing VOS rates and VOS
design best practices. Currently, Austin and Minnesota are the only jurisdictions
that have implemented this policy.